All posts tagged high frequency trading

The U.S. banking sector has become less efficient in recent decades despite the increased use of new technologies like high-frequency trading and products such as derivatives, according to two papers presented at a Federal Reserve Bank of Atlanta conference.

The first, by Nobel-winning economist and Columbia University professor Joseph Stiglitz, dismisses the claims that high-frequency trading makes markets work better by allowing investors to react more quickly to shifts in the outlook, and that the industry also helps boost market liquidity. Read More »

The electronically thundering herd that is the community of high-frequency traders has found a surprising ally: the European Central Bank.

The Frankfurt-based institution published a working paper on its website Tuesday which came down pretty firmly on the side of the much-maligned cyber-traders, agreeing with their long-held presentation of themselves as a force for efficient and competitive markets.

The authors of the report conclude that HFT generally goes in the direction of correct price signals and against “noise” or short-term volatility, promoting efficiency “both on average and on the highest volatility days.” That last claim is crucial, given the widespread belief among governments that the small-scale individual traders who are so active in HFT are wont to take their precious liquidity off the table at the first sign of volatility.

Before anyone gets too carried away, the view isn’t an official one: all the ECB’s working papers are presented as the opinions not of the bank, but of their authors — in this case Jonathan Brogaard, Terrence Hendershott and Ryan Riordan, three academics of transatlantic origin, all with a track record of defending HFT, and none of them permanently retained by the ECB. Moreover, a cynic would point out that the authors have drawn their data only from U.S. equity markets. One might be forgiven for thinking that the ECB would have given the paper a heavier edit if it had been euro-zone government bonds, rather than U.S. equities, that had melted down in a ‘”flash crash” at the height of the euro crisis. Read More »

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